"As investors become more sophisticated and debt service coverage ratio (DSCR) lending continues to grow, the appraisal has moved from a back-office requirement to a central risk-control mechanism, especially for income-driven loans. STR income does not behave like traditional rental income; yet, it is often evaluated using tools and assumptions designed for long-term leases. When nightly pricing, seasonality, operational intensity and regulatory exposure enter the equation, the old appraisal playbook starts to break down."
"At its core, DSCR lending asks a simple question: can the property carry its own debt? Many lenders require a DSCR of at least 1.1, meaning $1,100 in income for every $1,000 in expenses. But rising taxes, insurance and operating costs can quickly break that math if income assumptions are misaligned. Unlike long-term rentals, which rely on relatively stable market rent, STR performance is driven by fluctuating occupancy, dynamic pricing and active management decisions."
Short-term rentals function as hospitality businesses whose income is driven by nightly pricing, seasonality, occupancy volatility, dynamic pricing, active management, and regulatory exposure. Traditional appraisal tools and assumptions built for long-term leases often mismeasure STR income risk. DSCR lending measures whether a property can cover its own debt, commonly requiring a minimum DSCR of 1.1, which assumes stable income. Rising taxes, insurance, and operating costs can invalidate those assumptions if income forecasts ignore STR operational complexity. Experienced STR investors prioritize realistic cash-flow assumptions and durable income over currently low interest rates. Accurate appraisals must reflect real-world STR performance and operating intensity.
Read at www.housingwire.com
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